New Delhi: Endorsing the opening up of India’s retail market for branded chains despite evidence that clearly suggests small retailers will be hurt—at least initially—Icrier, a think tank, has asked the government to reduce the number of licences required to expand organized retail and to facilitate “a private code of conduct” for such retailers.
The politically correct and cleverly worded study, which Icrier took 14 months to finish after it was asked by the commerce and industry ministry to study the impact of organized retail on mom-and-pop stores, says if left alone, the unorganized sector, which accounts for more than 95% of all retail in India, will emerge as “a major bottleneck to raising productivity in both agriculture and industry”.
The long delay in the submission of the report was seen by some political observers as a way for the Indian government to try and bury an issue that flared up in early 2007.
Bright prospects: A Big Bazaar store in Bangalore. The Icrier report said the retail sector is likely to grow at 13% till 2011-12 where organized retail is expected to swell at a torrid pace of 45-50% in this period while unorganized retail will grow at about 10%. (Hemant Mishra / Mint)
That’s when Sonia Gandhi, the chairperson of the ruling Congress-led UPA government, responding to protests and political tensions over the spread of organized retail, asked the Prime Minister’s Office to look into the impact of domestic and foreign retailers on India’s millions of small traders, who are widely dispersed but have strong pockets of influence in urban India.
Indeed, the study finally made public on Monday by Icrier follows a series of stories in December and April in Mint that had extensively reported on the survey findings as well as proposed recommendations of the Indian Council for Research on International Economic Relations.
Though Icrier publicly disputed the initial Mint stories, claiming its survey findings will be different, the final report is very much in line with the same reported recommendations and findings, including those that showed small retailers and vendors will be hard hit by big stores, though they will find ways to innovate to try and stay in business.
Overall, across both the “treatment sample”, or stores in areas where there is head-to-head competition with organized retail outlets, and the control sample, sales of small stores were down 8% and profits 9%. The study also found that while around 4.2% of the total number of small stores in the country down their shutters every year, less than half this, or around 1.7% of them go out of business on account of competition from big retail.
Rajiv Kumar, director and chief executive of Icrier, noted that entry of big retail was inevitable.
“There will be huge growth in the organized sector but the unorganized sector will stay there...and if you don’t have the entry of the large ones (the organized retail players) you simply won’t have the huge growth in retail (that is anticipated),” Kumar claimed that it’s “a win-win situation where both (the large organized retailers and small unorganized ones) can coexist in so many countries.”
In March, minister for commerce and industry Kamal Nath had said the Icrier report will influence future policies on the issue of further liberalizing India’s lucrative yet politically sensitive retail sector. Organized retail has been in the spotlight for more than a year with small shopkeepers picketing and protesting the threat to the livelihoods, demanding big players be barred from retailing and some states supporting their concerns by asking a few of the big retailers to shutter shops or imposing a cess on fresh produce bought at large stores.
On Monday, Nath claimed he had no comment on the report because he had not seen the contents of the study, though a detailed summary for the report was presented to his ministry two months ago.
Another senior official at the ministry, however, said with India expected to go for a nationwide general election, “nobody will” take a decision. “We are not going to get big-bang opening up of retail,” but it will be more like a “trickle’’ effect, he said, asking not to be named due to the sensitivity of the matter. “My general impression is nothing will happen before the general elections.”
India currently allows up to 51% overseas ownership in the so-called single-brand retailing business where products are sold under one brand name such as Gucci or Marks and Spencer, it allows full foreign ownership in cash-and-carry stores and bars foreign investment in multi-brand stores.
Icrier’s other recommendations include modernization of “wet markets”, or markets for fresh produce, through public-private partnerships; creation of wholesale outlets to which farmers can sell produce and from which small stores can procure it; ensuring access and availability of credit for small stores from banks and microfinance firms; and a strengthening of the country’s competition commission’s role.
The Icrier report said the country’s retail sector is likely to grow at 13% till 2011-12 where organized retail is expected to swell at a torrid pace of 45-50% in this period while unorganized retail will grow at about 10%. The study was conducted over months in 10 Indian cities and surveyed some 2,000 small traders, about 1,000 consumers, 100 intermediaries and 197 farmers.
The report also says that consumers whose monthly household income is less than Rs10,000 and those who spend less than Rs250 in each visit would get the maximum discounts at a discount store. This suggests that they would be the greatest beneficiaries of the growth of organized retail.
The government will now study Icrier’s suggestions, specially the recommendations on empowering the small retailers, including easy availability of bank loans, said Kumar.
“The next thing would be to consult with various stakeholders and the ministry concerned,” says Ajay Shankar, secretary, department of industrial policy and promotion, the commerce ministry unit that commissioned the study. “We will put the report in the public domain and have an informed debate before deciding anything.”
Opponents of modern retailers dubbed the report as “short-sighted”.
“They just talked of the short-term impact and there is no debate on the long-term impact on farmers and the unorganized sector,” said Dharmendra Kumar, director of India FDI Watch, a group that opposes the entry of foreign and Indian companies into the country retail industry, which is expected to swell to more than $600 billion (Rs25.56 trillion) in the next four years from about $300 billion at present. “It’s a question of the survival of the small ones and people are getting displaced and the (modern retailers) are expanding only at the cost of the unorganized retailers.”
Meanwhile, a study by Nielsen Co., released on Monday, says that retailing through branded stores in India expanded by 90% between November 2006 and November 2007, based on a survey conducted in eight cities.
firstname.lastname@example.org Saumya Roy in Mumbai contributed to this story.